Japan plans to issue 50-year bonds to support yields

TOKYO: Japanese policymakers are considering a 50-year government bond issue as a long-term means of putting a floor under super-long interest rates, sources say.
Selling such bonds – a hot topic after Bank of Japan Governor Haruhiko Kuroda commented on the idea this month – would allow the government to lock in cheap long-term funding and give yield-starved investors higher returns.
It could also offer the BOJ a new tool for its “yield-curve control” (YCC) policy by helping prevent excessive declines in super-long bond yields, which hurt returns of pension funds.
There no immediate plans to issue such bonds in Japan, but the Ministry of Finance has long considered the idea, holding hearings with market participants three years ago, a finance ministry official said.
That plan was turned down because investor demand was scarce, finance ministry officials say.
“It has not been ruled out completely and could be an issue to consider in the long run,” another ministry official said.
Adding 50-year bonds could drain liquidity from markets of other super-long bonds, making yields vulnerable to wild swings, MOF officials say. It is also unclear whether 50-year bonds would be traded much, as investors could suffer huge losses if yields spike.
The BOJ is also scrutinising how issuing more long bonds could affect its YCC policy, which aims to control the shape of the yield curve, say sources familiar with its thinking.
“If the government issues more super-long bonds or starts selling 50-year debt, that could help steepen the yield curve,” one of the sources said. — Reuters